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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1999
or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ________ to _________.
Commission File Number 0-19811
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OPTA FOOD INGREDIENTS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-3117634
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 Wiggins Avenue
Bedford, Massachusetts 01730
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 276-5100
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value per share
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(Title of Class)
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value, based upon the closing sale price of the shares
as reported by the Nasdaq National Market, of voting stock held by non-
affiliates (without admitting that any person whose shares are not included in
such calculation is an affiliate) at March 17, 2000 was $25,879,702.
As of March 17, 2000, 10,897,864 shares of the registrant's Common Stock,
$.01 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its 2000 Annual
Meeting of Stockholders are incorporated by reference into Part III of this
Report on Form 10-K.
The following discussion of the Company's business in this Annual Report on Form
10-K contains, in addition to historical statements, forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
significantly from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include the factors
discussed in this section under the caption "Cautionary Statement Regarding
Forward-Looking Statements."
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Item 1. Business
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GENERAL
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Opta Food Ingredients, Inc. (referred to herein as the "Company" or "Opta")
was incorporated in Delaware on April 23, 1991 and its executive offices are
located at 25 Wiggins Avenue, Bedford, Massachusetts 01730. The Company's
telephone number is (781) 276-5100 and fax number is (781) 276-5101. Opta,
CrystaLean, EverFresh, OptaFil, OptaGlaze, OptaGrade, Optex, OptaMax and Snowite
are registered trademarks of the Company.
Opta is a leading innovator, manufacturer and marketer of proprietary
texturizing products sold to food processors in North America who focus on the
dairy, dressings/sauces, meat and baked goods categories. Opta applies advanced
enzymology, protein and carbohydrate chemistries to develop innovative food
ingredient products such as fat replacers, bulking agents and other texturizing
agents that solve specific customer problems. Opta creates its products through
the modification of inexpensive, readily available raw materials to produce food
ingredients that it considers to be Generally Recognized As Safe ("GRAS") under
current U.S. Food and Drug Administration ("FDA") regulations. At December 31,
1999, Opta's products were being used in more than 35 different applications by
over 200 customers, including 10 of the 15 largest U.S. consumer packaged food
companies and three of the world's largest quick service restaurant chains.
INDUSTRY BACKGROUND AND MARKET OPPORTUNITY
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Over the past few years, the food industry has experienced an unprecedented
period of significant, fundamental change worldwide. The pace of change is
accelerating and impacts every aspect of the food business. Key sectors of the
industry are consolidating through mergers and acquisitions. Indeed, 1999 was
another record year of food company mergers. Driving forces within the industry
have shifted away from the manufacturer to the retailer and, ultimately, to the
consumer. Food safety remains the number one concern of consumers. Public sector
regulatory agencies as well as private sector consumer associations are becoming
more vigilant. Consumer education, labeling requirements, and a high level of
popular interest in extending and improving the quality of life have greatly
increased consumer awareness of food and its role in promoting and maintaining a
healthy lifestyle. Since 1994, consumer spending on food prepared outside the
home has continued to increase and has exceeded consumer spending on food
prepared at home. Consumers are demanding foods that are safe, convenient,
nutritious, healthful, readily available, competitively priced and that taste
great. Food processors are under tremendous pressure to remove undesirable
components such as fat and sugar or unwanted additives from foods through
reformulation of their products. This trend has now gone a step further. Not
only are undesired components being formulated out, but ingredients with
purported health benefits are being incorporated into a growing number of
everyday foods.
In the face of these challenges, consumer food and food service companies
are seeking ways to increase their ability to respond quickly and effectively to
an extremely dynamic marketplace. In addition, as the industry further
consolidates and becomes more competitive, pressure has mounted to cut costs.
Investment in basic research and new product development by consumer food and
foodservice companies over the past decade has not kept pace with these demands.
As a result, a "technology gap" now exists between the demand for reformulation
of current products and the development of new, healthier foods. This is
especially true in the lack of development of new, highly functional food
ingredients that deliver the taste and textural attributes that consumers are
demanding.
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Opta's strategy is to capture the opportunity represented by this
"technology gap" by utilizing its proprietary technologies, know-how and
experience to create healthy, safe, inexpensive food ingredients with taste and
textural qualities that appeal to consumers. Opta is a customer driven,
flexible, responsive food ingredient supplier to consumer food and foodservice
companies with particular emphasis on the dairy, baked goods and meat segments
of the market. Opta's core expertise in the development, modification and
maintenance of specific food textures coupled with the Company's capabilities in
new ingredient development and commercialization has enabled the Company to
create a portfolio of highly functional, innovative, GRAS food ingredients.
Opta's portfolio includes ingredients that have achieved industry recognition
and commercial use as fat replacers as well as agents that function as
stabilizers, bulking agents, thickeners, gelling agents and extenders in a wide
variety of food applications.
According to industry sources, the worldwide market for high value-added
food ingredients is approximately $20 billion per year. Opta's primary target
market of North America accounts for nearly 1/3 of this total. The Company's
products compete functionally within broad categories of the food ingredients
industry, including but not limited to, hydrocolloids, fibers, fat replacers,
emulsifiers and proteins. The Company estimates that the value of the
ingredients with which Opta directly competes is between $500 and $800 million
in North America. Dairy and bakery applications account for a significant
portion of this total opportunity; therefore, Opta has focused its sales and
marketing efforts, as well as its technical efforts, primarily on these two
sectors of the domestic market and more recently has expanded its reach into the
meat category.
OPTA'S STRATEGY
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The Company works closely with consumer food and foodservice companies to
identify product formulation, cost and/or productivity issues and develop
solutions to these problems based on proprietary, value-added, highly functional
food ingredients. Core elements of the Company's strategy include:
Solving Customer Problems Through Innovation. Opta's primary focus is on
solving its customers' problems rapidly through innovation rather than through
the traditional approach of selling basic raw materials or products derived
through chemical syntheses. The Company works closely with its customers to
identify each of their specific needs, establish probable solutions, develop
prototype food ingredients or formulations and to develop finished products that
meet or exceed the required sensory, functional, physical and nutritional
parameters. Also, the finished food containing Opta's ingredient should fit
existing manufacturing processes in a cost-effective manner. Opta differentiates
itself from its competitors by not being dependent upon any one raw material or
a single type of technology. This provides Opta the flexibility to take whatever
approach is most appropriate to solve the customer problem at hand.
Opta makes a significant investment in establishing long term
customer/supplier relationships with all its key current and prospective
accounts. This investment includes an outstanding level of service at all phases
of the customer's product development effort, from small scale formulation work
and analytical support through full commercial scale processing in their
manufacturing facilities. The return on this investment is chiefly captured via
ingredient sales, but this approach has other intangible benefits for the
Company including long-term customer relationships and a high degree of
credibility in the marketplace.
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Focusing on Technology Platforms as Sources of Innovation. The Company
intends to continue leveraging the expertise and knowledge base that it has
developed since its inception to further the development of families of related,
highly functional, value-added food ingredients. In order to best exploit both
internal and external resources and play to its strengths, the Company has
organized its product portfolio and continuing new product development efforts
on the basis of two main technology platforms: fiber-based texturizing agents
and starch-based texturizing agents. These technology platforms serve as an
organizing principle around which new learning can be captured, intellectual
property can be expanded, new products and applications can be developed, and
existing products can be effectively supported. These platforms have enabled the
development of the Company's current proprietary products and will serve as a
solid base for the addition of future ingredients with physical properties and
functionality targeted to specific end uses and the solution of specific
customer problems.
Opta believes that the technology platform approach permits it to solve
multiple customer and industry problems without requiring a separate investment
for each solution while retaining the flexibility to customize solutions for a
wider variety of industry problems. The Company also believes that future growth
will be derived from internally developed technology as well as from
acquisitions of complementary product lines and technologies to which Opta is
confident that it can add value and generate incremental revenue growth.
Employing Sophisticated Science and Practical Food Industry Experience to
Develop GRAS Food Ingredients. The Company relies upon its ability to combine
proprietary technological advances with practical food industry experience to
solve highly complex and specific food formulation problems presented by its
customers. Opta's research and development effort is conducted by a team of
scientists with expertise in the relevant sciences, including enzymology and
protein and carbohydrate chemistries, who work alongside experts in food science
and food engineering. The Company seeks to modify inexpensive raw materials to
produce value-added, natural food ingredients that meet the requirements for
GRAS status and that permit customers to have consumer-friendly labels which may
enable all-natural or other claims for their products.
Utilizing a Technically Sophisticated Customer Account Team and Marketing
Force. Opta believes the most effective way to solve a customer's problem is to
gain a thorough understanding of each customer at all levels, build solid
working relationships throughout the customer's organization, be knowledgeable
of the market segment in which the customer competes, and have a detailed
technical understanding of the customer's problem as well as their preferred
solution. The Company takes a multidisciplinary approach in order to achieve
this level of customer understanding and level of service. Members of Opta's
direct sales force are teamed up with the appropriate technical personnel to
work as "consultants" in defining and developing a range of potential solutions
to their formulation and product development problems. Through an iterative
process, the solution is refined and ultimately delivered according to the
customer's specification. In all cases, Opta's strategy is to provide
outstanding service and responsiveness, which the Company believes, will lead to
additional opportunities with existing and prospective customers.
OPTA'S PRODUCT DEVELOPMENT AND COMMERCIALIZATION PROCESS
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All of the Company's product development efforts are driven by specifically
stated and defined customer or market needs. In order to respond quickly to
market needs that represent credible opportunities for the Company, Opta employs
a simple, efficient system for integrating its development and commercialization
activities. The system has three primary stages: Discovery, Assessment and
Planning, and Execution and Review.
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The Discovery Stage
The Company's management, marketing, applications and technical service,
research and development personnel, as well as its direct sales team, maintain
close working relationships with leading consumer food and foodservice
companies. Opta actively seeks to assist in the definition and assessment of its
customers' ingredient-related needs whether the issue is quality, functionality,
cost, processibility, or otherwise. Opta assimilates this information on
customer needs into its Opportunity Portfolio, a database of new product ideas
and concepts. The Opportunity Portfolio is reviewed on a regular basis to keep
the pipeline of new developmental ingredients full. The review examines certain
criteria such as technical feasibility, market opportunity, the specific
customer need that is to be fulfilled, ability to patent or maintain as
proprietary, potential manufacturing costs and efficiencies, availability of raw
materials and qualification for GRAS status. Once an opportunity is judged to be
credible and achievable, the program proceeds to the next step.
The Assessment and Planning Stage
In this phase, key questions and critical hurdles regarding successful
outcome of a specific ingredient development effort are identified and
evaluated. An in-depth assessment is then made of the opportunity as technical
hurdles are defined, and a manufacturing strategy is developed. The purpose of
this stage is to ensure that there is a clear and common understanding within
the Company of the exact nature of the opportunity, the resources that will be
required to execute such opportunity and the deadline for its completion.
The Execution and Review Stage
Opta pursues its new product development and commercialization efforts by
employing cross-functional project teams and classic project management
techniques. A clear objective and deadline is set, the appropriate team members
from each of Opta's functional groups are assembled, and a Project Team Leader
is appointed. A formal project plan is put in place that contains the key
milestones, critical path activities, and other pertinent information for
driving the development and commercialization effort. Opta works closely with
its customers at all stages of new ingredient development--bench, pilot and
commercial scale--by the sampling of prototypes to the appropriate customers for
real world testing. This approach is essential in maximizing the chances for
success of newly commercialized ingredients. Another main feature of this
development stage is periodic project review. As any project proceeds, the
original objective and project plan may be modified based on new information or
the results of customer testing. Opta's process allows for flexibility and
provides opportunities to ensure that the ingredient under development is on
target with the customer need to be filled.
Once Opta and a potential customer agree that a test ingredient is
functional and of practical value, production scale-up commences, manufacturing
process is verified and any regulatory clearances are obtained. After launching
a new ingredient, Opta commercializes the ingredient for other applications and
other customers. Whenever possible, Opta manufactures and markets its own
products and distributes them through its direct sales organization within the
U.S. and through strategic partners internationally.
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PRODUCTS
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Opta has organized its product portfolio on the basis of two main
technology platforms: fiber-based texturizers which include Opta Oat Fibers,
Canadian Harvest oat fiber products, konjac flour and microcrystalline cellulose
(MCC) and starch-based texturizers which include OptaGrade, OptaMist, OptaFil,
CrystaLean, Opta Baking Gloss, OptaMax and stabilizer blends.
In addition to helping food manufacturers improve the healthfulness of
their food products, Opta's family of texturizing ingredients can improve the
overall quality of food products, reduce formulation costs and meet specific
processing requirements. The Company believes that all of its products are GRAS
under current FDA regulations.
Fiber-Based Products
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Opta Oat Fibers
Opta Oat Fibers are a family of natural insoluble fiber products derived
from oat hulls. Opta Oat Fibers are used commercially to increase yield and
enhance texture in ground meat products, to add strength and reduce breakage of
taco shells and ice cream cones, and to enhance texture in breads, cookies and
crackers.
Canadian Harvest
On December 31, 1999, Opta acquired substantially all of the assets of
Canadian Harvest, located in Cambridge, Minnesota, and all of the outstanding
shares of common stock of Canadian Harvest Process, Ltd., located in St. Thomas,
Ontario, Canada for $12 million in cash, with an additional $1.6 million paid
for net working capital. Canadian Harvest is a major international manufacturer
and supplier of dietary fiber with a product line which includes Snowite oat
fibers as well as a line of stabilized fibers.
Konjac Flour
In 1997, Opta signed an agreement with Shimizu International, Inc. of Japan
to become its exclusive North American distributor for konjac flour. A unique
and very versatile texturizing agent obtained from the konjac plant commonly
cultivated in East Asia, konjac flour provides excellent heat and freeze thaw
stability when used to thicken or gel processed foods. The potential advantages
and uses of konjac flour as a functional ingredient in food are just beginning
to be realized by the North American food industry. In Asia, konjac flour is
valued not only for its use as a food ingredient, but also for its beneficial
role as a soluble fiber in the diet. For example, there are many published
studies, which demonstrate the ability of konjac flour to reduce serum
cholesterol levels in humans. Konjac flour is currently being utililzed in
poultry and surimi applications and is being evaluated by a number of food
companies for a variety of applications including vegetarian burgers and ground
meat.
Microcrystalline Cellulose (MCC)
In 1998, Opta signed an agreement with Blanver Farmoquimica, Ltda. of
Brazil to become its exclusive North American distributor for MCC. MCC, commonly
known and labeled as cellulose gel, is a naturally derived stabilizer,
texturizing agent and fat replacer. It is used extensively in reduced fat salad
dressings, numerous dairy products including cheese, frozen desserts and whipped
toppings and bakery products. MCC is currently being evaluated by a number of
food companies for a variety of applications including reduced fat salad
dressings and sauces.
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Starch-Based Products
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OptaGrade
OptaGrade is a natural, starch-based texturizing agent that is used
commercially in a variety of dairy products including natural, imitation and
processed cheeses, sour cream, cream cheese and cottage cheese. Fat free cheeses
made with OptaGrade have shown superb meltability with none of the off-taste or
rubbery texture found in most fat free and reduced fat cheeses. By using
OptaGrade in cottage cheese, food manufacturers are able to reduce total
formulation costs while delivering excellent taste, texture and appearance.
OptaGrade is also used to improve the taste and texture of reduced fat and fat
free cream cheeses. In sour cream, OptaGrade is used to create a smooth, creamy
texture and can replace up to eight other ingredients allowing for a "cleaner"
ingredient label.
OptaMist
OptaMist is also a starch-based texturizing agent that improves the taste,
texture and appearance of dairy products, yogurt, natural and processed cheese
products, salad dressings and mayonnaise. While the functionality of OptaMist
is similar to that of OptaGrade, its unique processing flexibility allows it to
be used in food products made within a wide variety of processing systems.
OptaFil
Optafil is a starch-based opacifying agent and whitener used in reduced fat
or fat free dairy and non-dairy creamers, whipped toppings, beverages, cheeses
and salad dressings. OptaFil has gained acceptance in the marketplace because it
is easy to use and reduces residue on processing equipment. It is being used
commercially in fat free non-dairy creamers.
CrystaLean
CrystaLean is an enzyme-resistant, starch-based bulking and texturizing
agent designed to enhance texture and add fiber to food products including baked
goods and extruded products such as cereals and snack foods. CrystaLean is being
tested by a number of food companies for various applications and is being used
commercially in a nutrition bar specifically marketed to diabetics.
Opta Baking Gloss
Baking Gloss is a ready-to-use product that provides outstanding shine and
adhesion to baked goods. Launched in 1998, it is being marketed for use in
commercial bakeries.
OptaMax
OptaMax, introduced in September 1999, is a starch-based texturizing agent
developed to increase yields and improve the texture of reduced fat natural
cheese including Mozzarella, Cheddar, Colby, Monterey Jack and Feta. OptaMax is
being used commercially in a reduced fat cheddar cheese and is also being tested
by a number of other food companies for use in reduced fat cheese applications.
Stabilized Products
On June 30, 1999, the Company acquired the assets of Stabilized Products,
Inc. ("SPI"), a privately held manufacturer of specialized stabilizing
ingredients for the dairy product industry,
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for approximately $2.4 million in cash. SPI formulates and distributes dry and
liquid food ingredients known as stabilizers, which enhance the texture,
appearance and consistency of dairy products such as yogurt, ice cream, sour
cream and cheese.
Opta's priorities over the next few years are to expand sales and marketing
efforts to increase market penetration of its core fiber-based and starch-based
products in the categories currently being sold, as well as to extend their uses
to other targeted product categories; to develop proprietary customized blends
which utilize Opta's starch-based ingredients; to integrate the Canadian Harvest
and SPI product lines into Opta's product portfolio; to continue the marketing
and commercial development of OptaMax, MCC, konjac flour and baking gloss; and
to continue to innovate next generation products and technologies based upon
specific customer needs and requests. There can be no assurance that the Company
will be successful in fulfilling any or all of these priorities on a timely
basis, or at all, or that, for various reasons including market conditions,
available capital and management resources, the Company will be able to continue
to pursue these priorities.
CUSTOMERS, SALES AND MARKETING
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Customers
At December 31, 1999, Opta's products were being used in more than 35
different applications by over 200 customers, including 10 of the 15 largest
U.S. consumer packaged food companies and three of the world's largest quick
service restaurant chains. In the competitive consumer food and food service
industries, product formulations are competitive assets, and, as a result, the
Company's customers and prospective customers generally require Opta to retain
their identity in strict confidence through the execution of confidentiality
agreements.
During 1999 and 1998, International Food Solutions (formerly Case Swayne)
accounted for $8.5 million and $5.2 million or 44% and 37% of product sales,
respectively. In addition, during 1999, 1998 and 1997, $3.0 million, $3.9
million and $3.5 million of product sales were to a group of independent
bakeries that supply a quick service restaurant chain. There were no individual
customers during the year ended December 31, 1997 representing greater than 10%
of total revenue. International sales were $1.3 million ($512,000 to Europe;
$258,000 to the Middle East; $189,000 to Canada; $30,000 to Asia and $291,000 to
Latin America); $795,000 ($418,000 to Europe and $377,000 to the Middle East);
and $1.2 million ($376,000 to Europe and $833,000 to the Middle East) for the
years ended December 31, 1999, 1998, and 1997, respectively.
Sales and Marketing
Utilizing a technically sophisticated customer account team and marketing
force, Opta believes that the most effective way to solve each customer's
problem is to gain a thorough understanding of the customer at all levels, build
solid working relationships throughout the customer's organization, be
knowledgeable of the market segment in which the customer competes, and have a
detailed technical understanding of the customer's problem as well as its
preferred solution. The Company takes a multidisciplinary approach in order to
achieve this level of customer understanding and service. Members of Opta's
direct sales force are teamed up with the appropriate technical personnel to
work as "consultants" in defining and developing a range of potential solutions
to their formulation and product development problems. Through an iterative
process, the solution is refined and ultimately delivered to the customer's
specification. In all cases, Opta's strategy is to provide outstanding service
and responsiveness, which the Company believes, will lead to additional
opportunities with existing and prospective customers.
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MANUFACTURING
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On December 31, 1999, Opta acquired substantially all of the assets of
Canadian Harvest which included a 60,000 sq. ft. oat fiber manufacturing
facility in Cambridge, Minnesota and a 15,000 sq. ft. facility in St. Thomas,
Ontario, Canada which manufactures a line of stabilized fibers. The Company
plans to invest approximately $3 million in 2000 to expand the oat fiber
production capacity of the Cambridge, Minnesota facility to produce Opta's oat
fiber products. With the increase in production capacity due to the acquisition
of Canadian Harvest, the Company expects to meet its customers' orders over the
next few years.
During 1998, the Company expanded its Opta Oat Fibers facility in
Louisville, Kentucky increasing the plant's capacity by 40% to meet increased
customer demand for Opta's oat fiber products. In addition, as a result of
growing customer demand for OptaGrade, in May 1996, the Company acquired a
35,000 square foot manufacturing facility in Galesburg, Illinois. The facility
was renovated during 1997 and began production in 1998. The Company anticipates
that the facility will be able to produce all of its starch-based food
ingredient products. The facility has significantly increased the Company's
production capacity for its starch-based food ingredient products including
OptaGrade, OptaMist and OptaMax. There can be no assurance that the demand for
the Company's products will increase or remain at current levels to justify any
such additional capacity, or that the Company's manufacturing capability will
otherwise be sufficient to meet customer demands. The Company does not believe
that there are any limitations on sources and availability of raw materials.
COMPETITION
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The food ingredients industry is intensely competitive. Competitors include
major chemical companies with food ingredient divisions, other food ingredient
companies, stabilizer companies and those consumer food companies that also
engage in the development and sale of food ingredients. Many of these
competitors have financial and technical resources as well as production and
marketing capabilities substantially greater than those of the Company. In
addition, many of the Company's competitors have experience significantly
greater than that of the Company in the testing of new or improved products.
The texturizing agent and stabilizer blend markets are particularly
competitive. Many companies are engaged in the development of fat replacers,
other texturizing agents and stabilizer blends, and have introduced a number of
products in this area. Opta believes that specifically tailored texturizers and
stabilizer blends must be developed to meet the particular textural, taste and
processing requirements of each food category. The Company, therefore, is
developing a number of separate and distinct products with functionality
tailored to a specific end use.
The fiber segment of the texturizing agent market is large and competitive.
With the acquisition of Canadian Harvest, the Company believes that it is the
world's largest supplier of oat fiber to the food industry. Besides competing
with other oat fiber companies, Opta competes directly and indirectly with
producers of other types of fiber including soy and sugar beet fibers. Opta
believes that the Company will be able to use its scientific expertise and
proprietary knowledge to manipulate oat fiber so that it can be used to improve
the texture of foods in a manner that offers certain advantages over competitive
fiber products, but there can be no assurance that any such advantages will be
realized.
The Company believes that its success in competing with others will be
based on retaining scientific and technical expertise, identifying customer
needs for food ingredient solutions to solve food processing problems, rapidly
innovating and developing new food ingredients, developing food ingredients
which are GRAS and successfully testing, producing
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and marketing these products.
PATENTS AND TRADE SECRETS
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The Company's policy is to protect its technology by, among other things,
filing patent applications for technology relating to the development of its
business in the U.S. and in selected foreign jurisdictions. The Company has 34
issued U.S. patents and 11 pending U.S. patent applications relating to products
at various stages of technological development as well as 58 corresponding
issued or pending foreign patent applications.
The Company's successes will depend, in part, on its ability to protect its
products and technology under U.S. and international patent laws and other
intellectual property laws. The Company believes that it owns or has the right
to use all proprietary technology necessary to manufacture and market its
products under development. There can be no assurance, however, that patent
applications relating to the Company's products or technology will result in
patents being issued or that current or additional patents will afford
protection against competitors with similar technology. In addition, companies
that obtain patents claiming products or processes that are necessary for or
useful to the development of the Company's products can bring legal actions
against the Company claiming infringement.
The Company also relies on trade secrets and proprietary know-how and
confidentiality agreements to protect certain of its technologies and processes.
There can be no assurance that the Company's outside partners and contract
manufacturers will be prevented from gaining access to the Company's proprietary
technology and confidential information.
REGULATORY FRAMEWORK
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Opta's food ingredient products are regulated under the 1958 Food Additive
Amendments to the Federal Food, Drug and Cosmetic Act of 1938 (the "Act"), as
administered by the FDA. Under the Act, pre-marketing approval by the FDA is
required for the sale of a food ingredient which is a food additive unless the
substance is GRAS under the conditions of its intended use by experts qualified
by scientific training and experience to evaluate the safety of food
ingredients. A food additive is any substance, "the intended use of which
results or may reasonably be expected to result, directly or indirectly, in its
becoming a component or otherwise affecting the characteristics of any food."
Such pre-marketing approval for ingredients that are not GRAS, which is issued
in the form of formal regulation, requires a showing both that the food
ingredient is safe under its intended conditions of use and that it achieves the
function for which it is intended. GRAS status can be established in two ways,
either by "self-affirmation" in which the producer determines on its own that
the ingredient is GRAS, or by the issuance of a "GRAS affirmation regulation" by
the FDA in response to a GRAS petition. A food ingredient may be deemed GRAS
under the conditions of its intended use based upon its history of common use in
foods prior to 1958, or based upon scientific procedures which produce the same
quantity and quality of scientific evidence as would be required for the FDA to
issue a pre-market approval of the sale of a food additive.
In either case, in order to establish that a product is GRAS, it must not
only actually be safe in its intended use, but it must be generally recognized
as such. If a food ingredient is not entitled to GRAS status, pre-market
approval must be sought through the filing of a Food Additive Petition.
Countries other than the U.S. also regulate the sale of food ingredients.
Regulations vary substantially from country to country, and Opta takes
appropriate steps to comply with such regulations as necessary.
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Opta Oat Fibers, OptaGrade, OptaMist, CrystaLean, OptaMax and OptaFil are
being marketed pursuant to GRAS self-affirmation. Opta believes that the other
products for which it has retained commercial rights will also be determined to
be GRAS. However, such status cannot be determined until actual formulations and
uses are finalized. Thereafter, Opta will decide whether self-affirmation
procedures or a GRAS petition will be appropriate. Certain of the Company's
products may require a Food Additive Petition and in the event that one is
required, the Company may elect to sell or license its rights to another party.
There can be no assurance that the Company will be successful in bringing its
products to market based on its determination that such products meet these
criteria. Opta has established an independent Regulatory Board, a panel of
industry experts, to review the publicly available information and certify that
they have reviewed such data and regard an ingredient as GRAS.
HUMAN RESOURCES
- ---------------
At December 31, 1999, Opta employed 88 full-time employees, 6 of whom hold
Ph.D. or other advanced scientific degrees. Many of the Company's management and
professional employees have had prior experience with consumer food companies.
Management considers relations with its employees to be good.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
- ---------------------------------------------------------
Statements in this Annual Report on Form 10-K under the captions "Business"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf,
that are not historical fact constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors that could cause the actual results of the Company to be materially
different from the historical results or from any results expressed or implied
by such forward-looking statements. Factors which could cause actual results to
differ from these expectations include the size and timing of significant
orders, as well as deferral of orders, over which the Company has no control;
the extended product testing cycles of the Company's potential customers; the
variation in the Company's sales cycles from customer to customer; increased
competition posed by food ingredient manufacturers; changes in pricing policies
by the Company and its competitors; the adequacy of existing, or the need to
secure or build additional manufacturing capacity in order to meet the demand
for the Company's products; the Company's success in expanding its sales and
marketing programs and its ability to gain increased market acceptance for its
existing product lines; the Company's ability to timely develop and successfully
introduce new products in its pipeline at acceptable costs; the ability to scale
up and successfully produce its products; the potential for significant
quarterly variations in the mix of sales among the Company's products; the gain
or loss of significant customers; shortages in the availability of raw materials
from the Company's suppliers; the impact of new government regulations on food
products; the challenges of integrating the operations of acquired businesses;
and general economic conditions.
Item 2. Properties
The Company owns a 45,000 sq. ft. building in Bedford, Massachusetts which
the Company uses for its headquarters, pilot plant, research and development
laboratories and general corporate offices. Approximately 15,000 sq. ft. of
space in this building is leased to a third party under a lease expiring in
September 2002.
In addition, the Company subleases approximately 24,000 sq. ft. in
Louisville, Kentucky, for a term expiring in 2005. This space is occupied by the
Company's Opta Oat Fibers manufacturing plant, warehouses, related laboratories
and offices.
-11-
<PAGE>
In May 1996, the Company acquired a 35,000 sq. ft. manufacturing facility
in Galesburg, Illinois. This facility supports the production of the Company's
starch-based food ingredient products.
In June 1999, the Company acquired Stabilized Products, Inc. which leases a
facility through June 2002 with approximately 15,000 sq. ft. in High Ridge,
Missouri supporting the manufacturing of stabilizer blends.
In December 1999, the Company acquired the assets of Canadian Harvest which
included a 60,000 sq. ft. oat fiber manufacturing facility located in Cambridge,
Minnesota and a 15,000 sq. ft. manufacturing facility located in St. Thomas,
Ontario, Canada, which produces a line of stabilized fibers.
Item 3. Legal Proceedings
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
currently not a party to any legal proceedings, the adverse outcome of which,
individually or in the aggregate, management believes would have a material
adverse effect on the financial position or results of operations of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
-12-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------------------
The Company's Common Stock is traded on the Nasdaq Stock Market under the
symbol "OPTS", and is listed on Nasdaq's National Market. The following table
sets forth the high and low closing sales prices for the Company's Common Stock
as reported by the Nasdaq National Market for each of the periods indicated:
Year Ended December 31, 1998 High Low
---------------------------- ---- ---
First Quarter 5 7/8 3 3/34
Second Quarter 6 3/16 4 3/4
Third Quarter 5 25/32 3
Fourth Quarter 4 1/2 3 1/16
Year Ended December 31, 1999
----------------------------
First Quarter 4 7/16 2 1/4
Second Quarter 3 9/16 2 13/32
Third Quarter 4 3/8 2 3/4
Fourth Quarter 3 5/8 2 9/16
The Company has never paid a cash dividend. The Company intends to
retain all of its earnings, if any, for use in its business and does not intend
to pay cash dividends in the foreseeable future. In addition, certain of the
Company's loan agreements contain covenants that restrict the Company's ability
to pay dividends. Future dividend policy will depend, among other factors, upon
the Company's earnings and its financial condition.
As of March 20, 2000, there were approximately 225 holders of record
of the Company's Common Stock and the Company believes that the number of
beneficial holders exceeds 2,400.
-13-
<PAGE>
Item 6. Selected Financial Data (in thousands, except per share data)
- ---------------------------------------------------------------------
The following selected financial data for the five years ended
December 31, 1999 have been derived from the Company's financial statements
audited by PricewaterhouseCoopers LLP, independent accountants. The Company's
financial statements and the report thereon are included elsewhere in this
Annual Report on Form 10-K. The information below should be read in conjunction
with the Company's financial statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $19,289 $13,971 $ 8,799 $ 9,229 $ 7,067
Cost of revenue 12,408 10,146 6,730 7,409 6,340
Selling, general and admin expenses 4,553 4,033 3,874 3,868 2,725
Research and development expenses 3,275 3,665 4,236 4,038 3,102
Restructuring costs 350 - - - -
Loss from operations (1,297) (3,873) (6,041) (6,086) (5,100)
Net loss (157) (2,482) (4,569) (4,527) (4,197)
Basic and diluted net loss per share (1) (.01) (.22) (.41) (.42) (.48)
</TABLE>
(1) Computed on the basis described in Note 2 of Notes to Financial Statements.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets $21,733 $34,720 $37,808 $42,876 $48,848
Total assets 47,815 47,888 50,965 55,903 61,269
Current liabilities 3,546 2,685 3,847 3,117 3,152
Long term liabilities 2,733 3,126 2,625 4,417 6,125
Total stockholders' equity 41,536 42,077 44,493 48,369 51,992
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
- -------------
The following Discussion and Analysis of the Company's Financial Condition
and Results of Operations contained in this Annual Report on Form 10-K contains,
in addition to historical statements, forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ
significantly from the results discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include the factors
discussed in the section titled "Business" under the caption "Cautionary
Statement Regarding Forward-Looking Statements" as well as other factors in this
Annual Report on Form 10-K.
Introduction
Opta is a fully integrated developer, manufacturer and marketer of
proprietary food ingredients used by consumer food companies to improve the
nutritional content, healthfulness and taste of a wide variety of foods. The
Company modifies inexpensive raw materials and produces natural food ingredients
that can be considered Generally Recognized as Safe ("GRAS") under current U.S.
Food and Drug Administration ("FDA") regulations.
-14-
<PAGE>
This discussion should be read in conjunction with the section titled
"Business", the financial statements, and the notes to the financial statements,
included elsewhere in this Annual Report on Form 10-K.
Results of Operations
1999 Compared to 1998
- ---------------------
Revenue. Revenue for the year ended December 31, 1999 was $19.3 million,
representing an increase of $5.3 million or 38% as compared to 1998 revenue of
$14.0 million. The increase in 1999 revenue was largely the result of increased
demand from two of the Company's existing major customers as well as the
additional revenue related to the business acquired from Stabilized Products,
Inc. ("SPI") on June 30, 1999.
Cost of Revenue. Cost of revenue for the year ended December 31, 1999 was
$12.4 million representing an increase of $2.3 million or 22% in comparison to
1998 cost of revenue of $10.1 million. Cost of revenue as a percentage of
revenue decreased to 64% in 1999 as compared to 73% in 1998. This percentage
decrease was largely the result of certain improvements in fiber-based and
starch-based product margins resulting from operating efficiencies as well as a
reduction in manufacturing costs. In addition, the Company's margins in 1999
were impacted favorably by a supply agreement with one of the Company's major
customers.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses for the year ended December 31, 1999 were $4.6
million, representing an increase of $520,000 or 13% in comparison to SG&A
expenses of $4.0 million in 1998. SG&A expenses as a percentage of revenue
decreased to 24% in 1999 from 29% in 1998. The increase in SG&A expenses was
principally due to an increase in legal, consulting and recruitment costs in
1999 as well as the additional expenses attributable to the business acquired
from SPI.
Research and Development. Research and development ("R&D") expenses for the
year ended December 31, 1999 were $3.3 million, representing a decrease of
$390,000 or 11% in comparison to R&D expenses of $3.7 million in 1998. R&D
expenses as a percentage of revenue decreased to 17% in 1999 from 26% in 1998.
The decrease in R&D expenses was the result of the reduction in personnel costs
related to the Company's restructuring program which discontinued research on
its protein coatings and encapsulation technology platform in January 1999.
Restructuring Costs. The Company recorded a restructuring charge of
$350,000 during the first quarter of 1999 which is included in operating
expenses for the year ended December 31, 1999. This charge was the result of a
cost reduction program which included a reduction in headcount at its corporate
headquarters as a result of discontinuing research on its protein coatings and
encapsulation technology platform.
Other Income. Other income for the year ended December 31, 1999 was $1.1
million, representing a decrease of $251,000 or 18% in comparison to other
income of $1.4 million in 1998. The decrease is due to decreased interest
income on reduced amounts of cash and short term investments during 1999 as
compared to 1998.
-15-
<PAGE>
1998 Compared to 1997
- ---------------------
Revenue. Revenue for the year ended December 31, 1998 was $14.0 million
representing an increase of $5.2 million or 59% over 1997 revenue of $8.8
million. The increase in 1998 revenue was largely the result of increased
demand from two of the Company's existing major customers as well as the
addition of a new major customer during 1998.
Cost of Revenue. Cost of revenue for the year ended December 31, 1998 was
$10.1 million representing an increase of $3.4 million or 51% over 1997 cost of
revenue of $6.7 million. Cost of revenue as a percentage of revenue decreased
to 73% in 1998 as compared to 76% in 1997. This percentage decrease was largely
the result of certain improvements in Opta Oat Fibers margins resulting from
production efficiencies related to increased production capacity as well as a
reduction in manufacturing costs.
Selling, General and Administrative Expenses. SG&A expenses for the year
ended December 31, 1998 were $4.0 million representing an increase of $159,000
or 4% over 1997 SG&A expenses of $3.9 million. SG&A expenses as a percentage of
revenue decreased to 29% in 1998 from 44% in 1997. The increase in SG&A
expenses was principally due to additional staffing and bonus costs as well as
an increase in public/investor relations costs offset by a reduction in
consulting costs in 1998.
Research and Development. R&D expenses for the year ended December 31, 1998
were $3.7 million representing a decrease of $571,000 or 13% over 1997 R&D
expenses of $4.2 million. R&D expenses as a percentage of revenue decreased to
26% in 1998 from 48% in 1997. The decrease in R&D expenses is the result of
initial start-up costs of the Galesburg, Illinois production facility incurred
during 1997.
Other Income. Other income for the year ended December 31, 1998 was $1.4
million representing a decrease of $81,000 or 6% as compared to 1997 other
income of $1.5 million. The decrease is due to decreased interest income on
reduced amounts of cash and cash equivalents offset in part by decreased
interest expense on lower long term debt during 1998.
Income Taxes
At December 31, 1999, the Company had available net operating loss
carryforwards of approximately $31.2 million for income tax purposes. In
addition, the Company had approximately $881,000 of unused research and
development tax credits. Ownership changes, as defined in the Internal Revenue
Code, resulting from the Company's initial public offering in March 1992 and a
second public offering in August 1995, have limited the amount of net operating
loss and tax credit carryforwards that can be utilized annually to offset future
taxable income or tax liabilities. As a result, the amount of these net
operating losses and tax credit carryforwards which can be utilized annually is
$3.0 million for losses incurred prior to March 1992 and $9.1 million for losses
incurred prior to August 1995. These net operating loss and tax credit
carryforwards expire at various dates between 2006 and 2019. Subsequent changes
in ownership could further affect the limitation in future years.
Liquidity and Capital Resources
At December 31, 1999, the Company had approximately $12.6 million in cash
and short term investments and approximately $18.2 million of working capital.
The Company used approximately $57,000 of cash in operations during 1999
compared with approximately $1.4 million of cash used in operations in 1998.
-16-
<PAGE>
Capital expenditures for the years ended December 31, 1999 and 1998 were
approximately $769,000 and $1.4 million, respectively. The Company's various
debt agreements contain covenants that restrict the Company's ability to
participate in merger discussions, pay dividends, limit the Company's annual
capital expenditures and invest in certain types of securities and obtain
additional debt financing without bank approval. The Company was in compliance
with respect to all covenants and restrictions in its loan agreements at
December 31, 1999 and 1998.
The Company believes that its existing cash, short term investments, long
and short term debt and product sales will be adequate to fund its planned
operations, capital requirements and expansion needs through at least 2000.
However, the Company may require additional capital in the longer term, which it
may seek through equity or debt financing, collaborative arrangements with
corporate partners, equipment lease financing or funds from other sources. No
assurance can be given that these funds will be available to the Company on
acceptable terms, if at all. In addition, because of the Company's need for
funds to support future operations, it may seek to obtain capital when
conditions are favorable, even if it does not have an immediate need for
additional capital at such time.
Year 2000 Compliance
The Year 2000 issue concerns the ability of certain computerized
information systems to properly recognize date sensitive information such as a
date using "00" as the year 1900 rather than the year 2000. This could cause
systems to fail or miscalculate, causing a disruption of operations. The Company
may be at risk both with respect to its own Year 2000 compliance and the Year
2000 compliance of third parties, particularly suppliers of materials and
services as well as customers.
The Company relies on computer-based technology and utilizes a variety of
third party hardware and software extensively for financial and administrative
functions, such as accounting and management information. The Company had
identified and verified that its internal information technology ("IT") systems
are Year 2000 compliant, including accounting/financial reporting,
manufacturing/production and sales/invoicing systems.
The Company recently completed a Year 2000 compliance review of its non-IT
systems in 1999. These systems include equipment or processes used in
manufacturing, research and development, telecommunications and general office
applications, which may contain embedded technology. All critical non-IT
systems were found to be Year 2000 compliant.
Management believed that the most significant risk to the Company relating
to Year 2000 compliance issues was the effect such issues may have on its major
suppliers and customers. The Company completed an evaluation to assess the Year
2000 readiness of its major suppliers and customers. The Company believes there
is no material risk related to Year 2000 non-compliance of these suppliers and
customers.
Based on currently available information, management does not believe that
the financial impact of the Year 2000 issues discussed above will have a
material adverse effect on the Company's financial condition or results of
operations; however, it is uncertain to what extent the Company may be affected
by such issues, if any.
-17-
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
- -------------------------------------------------------------------
In January 1997, the Securities and Exchange Commission issued Financial
Reporting Release No. 48, which expands the disclosure requirements for certain
derivatives and other financial instruments. The Company does not utilize
derivative financial instruments. See Notes 1 and 2 to the Financial Statements.
The carrying amounts reflected in the balance sheet of cash and cash
equivalents, trade receivables and trade payables approximates fair value at
December 31, 1999 due to the short maturities of these instruments.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
Financial Statements and Supplementary Data appear at pages F-1 through F-
16 of this Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
- --------------------
Not applicable.
-18-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
(a) Directors. The information with respect to directors required by this
item is incorporated herein by reference from the section entitled "Election of
Directors" in the Company's definitive Proxy Statement for its Annual Meeting of
Stockholders to be held May 23, 2000 (the "2000 Proxy Statement"), to be filed
with the Securities and Exchange Commission not later than April 28, 2000.
(b) Executive Officers.
The executive officers of the Company, who are elected to serve at the
discretion of the Company's Board of Directors, are as follows:
Name Age Position
- ---- --- -----------------------------------------------
Arthur J. McEvily, Ph.D. 48 President, Chief Executive Officer and Director
Joel A. Stone 47 Vice President Operations
Scott A. Kumf 43 Chief Financial Officer, Vice President
Administration, Treasurer and Assistant Secretary
Dr. McEvily was named President and Chief Executive Officer in February
2000. Previously, he was named Executive Vice President in January 1999, Senior
Vice President, Commercial Development in December 1997 and served as Vice
President Applications, Technical Service and New Product Commercialization from
August 1996 to December 1997. He served as Vice President Sales and Business
Development of the Company from December 1993 to August 1996. From May 1991 to
December 1993 he held various positions at Opta, ranging from Senior Research
Scientist to Product Director to Director of Business Development. Dr. McEvily
served in various scientific capacities at Enzytech from October 1988 to May
1991. Dr. McEvily received a B.Sc. in Biochemistry from Marlboro College,
Marlboro, Vermont and a Ph.D. in chemistry from The University of North Carolina
at Chapel Hill. He was a postdoctoral fellow at Harvard Medical School.
Mr. Stone has served as Vice President Operations and Manufacturing since
May 1991. He served as Senior Director of Manufacturing and Engineering
Management at Enzytech from April 1990 to May 1991. Prior to joining Enzytech,
Mr. Stone was Director of Manufacturing at Genencor, Inc. from August 1988 to
March 1990. From August 1986 to August 1988, Mr. Stone was Manager of Operations
at the Harbert Lummus Joint Venture.
Mr. Kumf joined Opta in August 1996 as Chief Financial Officer and Vice
President Administration. He was elected Treasurer and Assistant Secretary in
December 1996. Prior to joining Opta, Mr. Kumf served at BostonCoach, Inc. as
Chief Financial Officer from September 1995 to August 1996. From August 1994 to
May 1995, he was the Chief Financial Officer of Trotter, Inc. and from September
1990 to July 1994 he served as Chief Financial Officer for Polar Corp. Mr. Kumf
is a Certified Public Accountant in Massachusetts.
-19-
<PAGE>
Item 11. Executive Compensation
- -------------------------------
The information required under this item is incorporated herein by
reference from the section entitled "Executive Compensation" in the 2000 Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
The information required by this item is incorporated herein by reference
from the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the 2000 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
The information required by this item is incorporated herein by reference
from the section entitled "Certain Transactions" in the 2000 Proxy Statement.
-20-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) Documents filed as part of this Report:
--------------------------------------
<TABLE>
<CAPTION>
(1) Financial Statements:
--------------------
<S> <C>
Report of Independent Accountants F-1
Balance Sheet at December 31, 1999 and 1998 F-2
Statement of Operations for the three years ended December 31, 1999 F-3
Statement of Stockholders' Equity for the three years ended December 31, 1999 F-4
Statement of Cash Flows for the three years ended December 31, 1999 F-5
Notes to Financial Statements F-6
</TABLE>
(2) All financial statement schedules are omitted because they are not
applicable, not material, or the required information is shown in the
financial statements or the notes thereto.
(3) Exhibits
--------
Exhibit Number Description
- -------------- -----------
3.1 Amended and Restated Certificate of Incorporation of the Company (Filed
as Exhibit 4.2 to the Company's Registration Statement on Form S-8,
Registration No. 33-93518, and incorporated herein by reference)
3.2 Restated By-Laws of the Company (Filed as Exhibit 3.4 to the Company's
Registration Statement on Form S-1, Registration No. 33-45700, as
amended, and incorporated herein by reference)
4.1 Article 4 of the Amended and Restated Certificate of Incorporation of
the Company (see Exhibit 3.1) (Filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-8, Registration No. 33-93518, and
incorporated herein by reference)
4.2 Form of Common Stock Certificate of the Company (Filed as Exhibit 4.2
to the Company's Registration Statement on Form S-1, Registration No.
33-45700, as amended and incorporated herein by reference)
4.3 Form of Warrant Certificate of the Company (Filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-3, Registration No. 33-
80860, and incorporated herein by reference)
10.1 Form of Unit Purchase Agreement dated as of April 21, 1994 between the
Company and the respective parties thereto (Filed as Exhibit 99.2 to
the Company's Form 8-K, Commission File No. 0-19811, and incorporated
herein by reference)
10.2 Amended and Restated Master Food Ingredients Collaborative Development
Agreement, dated August 11, 1994, between the Company and Pfizer Inc.
(Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994, and incorporated herein by
reference)*
-21-
<PAGE>
10.3 Master Food Ingredients License Agreement dated June 13, 1991 between
the Company and Pfizer Inc. (Filed as Exhibit 10.2 to the Company's
Registration Statement on Form S-1, Registration No. 33-45700, as
amended, and incorporated herein by reference)*
10.4 Form of First Amendment to Master Food Ingredients License Agreement
(Filed as Exhibit 10.3 to the Company's Registration Statement on Form
S-1, Registration No. 33-45700, as amended and incorporated herein by
reference)
10.5 Licensed Product Term Sheet dated March 2, 1994 between the Company and
Pfizer Inc. (Filed as Exhibit 10.5 to the Company's 1994 Annual Report
on Form 10-K, Commission File No. 0-19811, and incorporated herein by
reference). *
10.6 License and Technology Transfer Agreement effective as of May 1, 1991
between the Company and Enzytech, Inc. (Filed as Exhibit 10.6 to the
Company's Registration Statement on Form S-1, Registration No. 33-
45700, as amended, and incorporated herein by reference)
10.7 Promissory Note and Mortgage Agreement dated August 19, 1993 between
the Company and Springfield Institution for Savings (Filed as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993, Commission File No. 0-19811, and incorporated
herein by reference)
10.8 Loan Agreement dated November 5, 1992 between the Company and
Massachusetts Business Development Corporation (Filed as Exhibit 10.12
to the Company's Annual Report on Form 10-K for the year ended December
31, 1992, Commission File No. 0-19811, and incorporated herein by
reference)
10.9 Mortgage and Security Agreement dated November 3, 1994 executed by the
Company in favor of the Massachusetts Business Development Corporation
(Filed as Exhibit 10.9 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, Commission File No. 0-19811, and
incorporated herein by reference)
10.10 Authorization and Loan Agreement dated May 18, 1992 among the Company,
Massachusetts Certified Development Corporation and U.S. Small Business
Administration (Filed as Exhibit 10.13 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992, Commission File No.
0-19811, and incorporated herein by reference)
10.11 Fixed Asset Line of Credit dated March 29, 1993 between the Company and
Silicon Valley Bank (Filed as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993,
Commission File No. 0-19811, and incorporated herein by reference)
10.12 Asset Purchase Agreement dated June 17, 1992, between Williamson Fiber
Products, Inc., The Williamson Group, Inc. and the Company (Filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K dated June 17,
1992, Commission File No. 0-19811, and incorporated herein by
reference)
-22-
<PAGE>
10.13 Sublease and Consent dated June 17, 1992 among Williamson Fiber
Products, Inc., the Company and Spring Street Developers (Filed as
Exhibit 28.2 to the Company's Current Report on Form 8-K dated June 17,
1992, Commission File No. 0-19811, and incorporated herein by
reference)
10.14 Consulting Agreement, dated January 28, 1992, between the Company and
A.S. Clausi (Filed as Exhibit 10.24 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, Commission File No. 0-
19811, and incorporated herein by reference)#
10.15 Stock Purchase and Repurchase Agreement, dated May 29, 1991, between
the Company and Akiva T. Gross (Filed as Exhibit 10.18 to the Company's
Registration Statement on Form S-1, Registration No. 33-45700, as
amended, and incorporated herein by reference)
10.16 Employment Agreement, dated May 1, 1991, between the Company and Akiva
T. Gross (Filed as Exhibit 10.21 to the Company's Registration
Statement on Form S-1, Registration No. 33-45700, as amended, and
incorporated herein by reference)#
10.17 Letter agreement, dated May 1, 1995, between the Company and Akiva T.
Gross (Filed as Exhibit 10.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, Commission File No. 0-
19811, and incorporated herein by reference)#
10.18 Promissory Note dated August 12, 1994 executed by Akiva T. Gross in
favor of the Company (Filed as Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994,
Commission File No. 0-19811, and incorporated herein by reference)
10.19 Pledge Agreement dated August 12, 1994 between Akiva T. Gross and the
Company (Filed as Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994, Commission File No.
0-19811, and incorporated herein by reference)
10.20 Extension and amendment of Employment Agreement, dated October 1, 1992
between the Company and Lewis C. Paine, III, dated December 31, 1993
(Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, Commission File No. 0-19811, and
incorporated herein by reference)#
10.21 Stock Purchase and Repurchase Agreement, dated May 29, 1991, between
the Company and Lewis C. Paine, III (Filed as Exhibit 10.17 to the
Company's Registration Statement on Form S-1, Registration No. 33-
45700, as amended, and incorporated herein by reference)
10.22 Amended and Restated Promissory Note dated as of September 19, 1990
executed by Lewis C. Paine, III in favor of the Company (Filed as
Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992, Commission File No. 0-19811, and incorporated
herein by reference)
10.23 Promissory Note dated January 8, 1993, executed by Lewis C. Paine, III
in favor of the Company (Filed as Exhibit 10.27 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992, Commission
File No. 0-19811, and incorporated herein by reference)
-23-
<PAGE>
10.24 Pledge Agreement dated January 8, 1993, between Lewis C. Paine, III and
the Company (Filed as Exhibit 10.28 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, Commission File No. 0-
19811, and incorporated herein by reference)
10.28 Employee Agreement for Protection of Company Property, dated May 1,
1991, in the form executed by Officers of the Company (Filed as Exhibit
10.23 to the Company's Registration Statement on Form S-1, Registration
No. 33-45700, as amended, and incorporated herein by reference)
10.29 1992 Employee, Director and Consultant Stock Option Plan, as amended
through March 10, 1993 (Filed as Exhibit 28.1 to the Company's
Registration Statement on Form S-8, Registration No. 33-65406, and
incorporated herein by reference)#
10.30 Amendment to 1992 Employee, Director and Consultant Stock Option Plan,
adopted January 19, 1995 (filed as Exhibit 10.30 to the Company's 1994
Annual Report on Form 10-K, Commission File No. 0-19811, and
incorporated herein by reference)#
10.31 Employee Stock Purchase Plan, as amended and restated (Filed as Exhibit
28.3 to the Company's Registration Statement on Form S-8, Registration
No. 33-48624, and incorporated herein by reference)#
10.32 Amendment to Employee Stock Purchase Plan, adopted February 16, 1993
(Filed as Exhibit 10.41 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992, Commission File No. 0-19811, and
incorporated herein by reference)#
10.33 Press Release dated June 4, 1996, announcing that the Company's revenue
and earnings for the second quarter and 1996 as a whole are likely to
be lower than Wall Street estimates. (Filed as Exhibit 99.1 to the
Company's Current Report on Form 8-K dated June 4, 1996, Commission
File No. 0-19811, and incorporated herein by reference)
10.34 Amendment to 1992 Employee, Director and Consultant Stock Option Plan,
adopted March 5, 1996 (filed as Exhibit 10.34 to the Company's 1998
Annual Report on Form 10-K, Commission File No. 0-19811, and
incorporated herein by reference)#
10.35 Amendment to 1992 Employee, Director and Consultant Stock Option Plan,
adopted February 26, 1998 (filed as Exhibit 10.35 to the Company's 1998
Annual Report on Form 10-K, Commission File No. 0-19811, and
incorporated herein by reference)#
10.36 Employment Agreement dated December 8, 1998 between the Company and
Lewis C. Paine, III (filed as exhibit 10.36 to the Company's 1998
Annual Report on Form 10-K, Commission File No. 0-19811, and
incorporated herein by reference)#
10.37 Amendment to 1992 Employee, Director and Consultant Stock Option Plan,
adopted May 18, 1999 (Filed as Exhibit 10.37 to the Company's 1999
Annual Report on Form 10-K, Commission File No. 0-19811, and
incorporated herein by reference)#
-24-
<PAGE>
10.38 Asset Purchase Agreement dated June 16, 1999 between the Company and
Stabilized Products, Inc. (filed as exhibit 10.1 to the Company's
quarterly Report on Form 10-Q for the quarter ended June 30, 1999,
Commission File 0-19811, and incorporated herein by reference)
23 Consent of PricewaterhouseCoopers LLP (filed herewith)
* Confidential treatment has been granted by the Securities and Exchange
Commission.
# Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
-------------------
No Reports on Form 8-K were filed by the Company during the quarter
ended December 31, 1999.
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
OPTA FOOD INGREDIENTS, INC.
Date: March 20, 2000 By: /s/ Arthur J. McEvily, Ph.D.
--------------------------------------
Arthur J. McEvily, Ph.D.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Arthur J. McEvily, Ph.D. President, Chief Executive March 20, 2000
- ---------------------------- Officer and Director
Arthur J. McEvily, Ph.D. (principal executive officer)
/s/ Scott A. Kumf Chief Financial Officer, March 20, 2000
- ---------------------------- Vice President Administration,
Scott A. Kumf Treasurer and Assistant Secretary
(principal financial and accounting officer)
/s/ William P. Carmichael Director March 20, 2000
- ----------------------------
William P. Carmichael
/s/ A.S. Clausi Director March 20, 2000
- ----------------------------
A.S. Clausi
/s/ Harry Fields Director March 20, 2000
- ---------------------------
Harry Fields
/s/ Glynn C. Morris Director March 20, 2000
- ---------------------------
Glynn C. Morris
/s/ Frederic Stevenin Director March 20, 2000
- ---------------------------
Frederic Stevenin
</TABLE>
-26-
<PAGE>
Opta Food Ingredients, Inc.
Balance Sheet (in thousands, except share amounts)
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Board of Directors and
Stockholders of Opta Food Ingredients, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income, cash flows and stockholders' equity present fairly, in all material
respects, the financial position of Opta Food Ingredients, Inc. at December 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 22, 2000
F-1
<PAGE>
Opta Food Ingredients, Inc.
Balance Sheet (in thousands, except share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,578 $ 30,315
Short term investments 10,004 -
Accounts receivable, net 3,927 1,950
Inventories, net 4,678 2,071
Prepaid expenses and other assets 546 384
-------- --------
Total current assets 21,733 34,720
Fixed assets, net 23,820 12,473
Goodwill, net 1,549 -
Patents and trademarks, net 592 626
Other assets 121 69
-------- --------
$ 47,815 $ 47,888
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long term debt $ 394 $ 426
Accounts payable 1,872 1,003
Accrued expenses 1,280 1,256
-------- --------
Total current liabilities 3,546 2,685
Long term debt 2,733 3,126
Commitments (Note 16)
Stockholders' equity:
Preferred stock, $.01 par value; 3,000,000 shares authorized, no shares issued or
outstanding - -
Common stock, $.01 par value; 15,000,000 shares authorized, 10,997,864 and 11,096,002
shares issued and outstanding at December 31, 1999 and 1998, respectively 111 111
Additional paid-in capital 79,807 79,747
Treasury stock, 150,000 shares at cost (444) -
Accumulated deficit (37,938) (37,781)
-------- --------
41,536 42,077
-------- --------
$ 47,815 $ 47,888
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
Opta Food Ingredients, Inc.
Statement of Operations (in thousands, except share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Product revenue $ 19,289 $ 13,971 $ 8,799
Cost and expenses:
Cost of revenue 12,408 10,146 6,730
Selling, general and administrative 4,553 4,033 3,874
Research and development 3,275 3,665 4,236
Restructuring 350 - -
-------- -------- --------
20,586 17,844 14,840
-------- -------- --------
Loss from operations (1,297) (3,873) (6,041)
Interest income 1,344 1,637 1,906
Interest expense (262) (263) (418)
Other income (expense), net 58 17 (16)
-------- -------- --------
Net loss $ (157) $ (2,482) $ (4,569)
======== ======== ========
Basic and diluted net loss per share $ (.01) $ (.22) $ (.41)
======== ======== ========
Weighted average shares outstanding - basic and diluted 11,031 11,084 11,034
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
Opta Food Ingredients, Inc.
Statement of Stockholders' Equity (in thousands, except share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional Treasury Total Stock-
--------------------------
Number of Par Paid-in Stock at Accumulated holders'
Shares Value Capital Cost Deficit Equity
---------- ----- ---------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 10,965,681 $ 110 $78,989 - ($ 30,730) $ 48,369
Sale of common stock pursuant to
exercise of stock options 85,526 1 615 - - 616
Sale of common stock pursuant to
exercise of stock warrants 21,918 - 45 - - 45
Sale of common stock under
employee stock purchase plan 6,708 - 32 - - 32
Net loss - - - - (4,569) (4,569)
---------- ----- ---------- --------- ----------- ------------
Balance at December 31, 1997 11,079,833 111 79,681 - (35,299) 44,493
Sale of common stock pursuant to
exercise of stock options 3,000 - 16 - - 16
Sale of common stock pursuant to
exercise of stock warrants 13,169 - 50 - - 50
Net loss - - - - (2,482) (2,482)
---------- ----- ---------- --------- ----------- ------------
Balance at December 31, 1998 11,096,002 111 79,747 - (37,781) 42,077
Sale of common stock pursuant to
exercise of stock options 30,899 - 6 - - 6
Sale of common stock under
employee stock purchase plan 20,963 - 54 - - 54
Purchase of treasury stock (150,000) - - (444) - (444)
Net loss - - - - (157) (157)
---------- ----- ---------- --------- ----------- ------------
Balance at December 31, 1999 10,997,864 $ 111 $ 79,807 ($ 444) ($ 37,938) $ 41,536
========== ===== ========== ========= =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
Opta Food Ingredients, Inc.
Statement of Cash Flows (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (157) $ (2,482) $ (4,569)
Adjustments to reconcile net loss to net cash used in operating
activities net of acquired amounts:
Depreciation and amortization 1,607 1,412 1,226
Forgiveness of notes receivable 20 40 40
Changes in assets and liabilities:
Increase in accounts receivable, net (521) (541) (406)
(Increase) decrease in inventories, net (1,397) 477 942
Increase in prepaid expenses and other assets (155) (222) (26)
Increase (decrease) in accounts payable 605 (300) 545
Increase (decrease) in accrued expenses (59) 197 192
Decrease in other liabilities - - (300)
-------- -------- --------
Total adjustments 100 1,063 2,213
-------- -------- --------
Net cash used in operating activities (57) (1,419) (2,356)
Cash flows from investing activities:
Purchase of short term investments (10,004) - (3,944)
Maturity of short term investments - - 4,586
Acquisition of businesses (16,005) - -
Purchase of fixed assets (769) (1,449) (1,304)
Increase in patents and trademarks (93) (63) (124)
Decrease in other assets - 49 32
-------- -------- --------
Net cash used in investing activities (26,871) (1,463) (754)
Cash flows from financing activities:
Proceeds from issuance of common stock 60 66 693
Purchase of treasury stock (444) - -
Proceeds from issuance of long term debt - 955 -
Principal payments on long term debt (425) (1,513) (1,499)
-------- -------- --------
Net cash used in financing activities (809) (492) (806)
Net decrease in cash and cash equivalents (27,737) (3,374) (3,916)
Cash and cash equivalents at beginning of year 30,315 33,689 37,605
-------- -------- --------
Cash and cash equivalents at end of year $ 2,578 $ 30,315 $ 33,689
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 262 $ 263 $ 404
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
1. Organization and Basis of Presentation
Opta Food Ingredients, Inc. (the "Company") is a leading innovator,
manufacturer and marketer of proprietary food ingredients that improve the
nutritional content, healthfulness, texture and taste of its customers'
food products. Opta is committed to finding solutions to customers'
formulation challenges by providing texturizing agents that it markets
primarily in North America to the dairy, dressings and sauces, meat and
baked goods categories. The Company was legally incorporated on April 23,
1991.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expense during
the year. Actual results could differ from those estimates.
2. Summary of Significant Accounting Policies
Revenue Recognition
Revenue for product sales is recognized upon shipment.
Cash and Cash Equivalents and Concentration of Credit Risk
Cash and cash equivalents include investments with initial maturities of
three months or less. The Company does not believe that it is subject to
any unusual credit risk beyond the normal credit risk related to operating
its business.
Accounts Receivable
Accounts receivable are reflected net of an allowance for doubtful accounts
of $105,000 and $90,000 at December 31, 1999 and 1998, respectively.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, primarily cash
equivalents and available-for-sale investments, at December 31, 1999 and
1998, approximate fair market value in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities". Unrealized gains and losses are reported as
a separate component of stockholders' equity.
Inventories
Inventories are stated at the lower of cost or market, cost determined
using the first-in, first-out method.
Fixed Assets
Fixed assets are stated at cost and depreciated using the straight-line
method over the estimated useful lives of the assets, which range from five
to forty years. Maintenance and repair costs are expensed as incurred.
Patents and Trademarks
Patent and trademark costs are capitalized and amortized on a straight-line
basis over the shorter of the estimated economic lives or the stated terms
of the patent or trademark. Amortization periods are eight and ten years,
respectively.
Goodwill
Goodwill represents the excess of the cost of acquired businesses over the
fair market value of their net tangible and identified intangible assets.
Goodwill is being amortized on a straight-line basis over a period of 10
years.
F-6
<PAGE>
Stock Compensation
The Company's stock option plans are accounted for using the intrinsic
value method to measure compensation expense in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". In 1996, the Company adopted only the footnote disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123", Note 13) which
discloses the pro forma effect of compensation expense of all equity
instruments issued to employees.
Net Loss Per Share
Basic net loss per share is determined by dividing the net loss by the
weighted average number of common shares outstanding during the year. All
common stock equivalents have been excluded from weighted average shares
outstanding for calculating diluted net loss per share because such
equivalents are anti-dilutive.
Segment Information
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information", ("FAS 131"). The Company adopted FAS
131 on January 1, 1998. FAS 131 establishes standards for reporting
information on operating segments in interim and annual financial
statements. The Company operates under one business segment. FAS 131 had no
impact on the Company's financial position or results of operations.
Reclassifications
Certain reclassifications have been made to the prior years financial
statements to conform to current presentation. These reclassifications have
no effect on the Company's results of operations or financial position.
3. Acquisitions
On June 30, 1999, the Company acquired the assets of Stabilized Products,
Inc. ("SPI"), a privately held manufacturer of specialized stabilized
ingredients for the dairy industry, for approximately $2.4 million in cash.
The acquisition of SPI was accounted for as a purchase and, accordingly,
SPI's results of operations have been included in the financial statements
since the date of acquisition. The excess of the purchase price over the
fair value of the net assets acquired was $1.6 million and has been
recorded as goodwill, which is being amortized on a straight-line basis
over 10 years. The purchase price at June 30, 1999 was allocated based on
the fair values of the assets purchased as follows (in thousands):
<TABLE>
<S> <C>
Accounts receivable $ 426
Inventories 276
Machinery and equipment 76
Other assets 4
Goodwill 1,630
</TABLE>
The Company's statements of operations and of cash flows for the year ended
December 31, 1999 reflect the financial results of Stabilized Products,
Inc. from July 1, 1999. Pro forma financial information has not been
provided because the amounts involved are not deemed material.
F-7
<PAGE>
On December 31, 1999, the Company acquired substantially all the assets of
Canadian Harvest located in Cambridge, Minnesota and all of the outstanding
shares of common stock of Canadian Harvest Process Ltd. located in St.
Thomas, Ontario, Canada for $12 million in cash, with an additional $1.6
million paid for net working capital. Canadian Harvest is a privately held
manufacturer and supplier of dietary and stabilized fibers. The acquisition
of Canadian Harvest was accounted for using the purchase method of
accounting. The purchase price has been tentatively allocated based on
estimated fair values at the date of acquisition as follows (in thousands):
<TABLE>
<S> <C>
Property, plant and equipment $11,790
Intangibles 110
Accounts receivable 1,029
Inventories 934
Other assets 76
Accounts payable 263
Accrued expenses 83
</TABLE>
The following unaudited pro forma combined results of operations have been
prepared as if the acquisition of Canadian Harvest had occurred at the
beginning of 1999 and 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Revenue $27,065 $ 21,365
Net loss $ (26) $ (2,743)
Net loss per share - basic and diluted $ (.00) $ (.25)
</TABLE>
Such pro forma combined results of operations have been prepared for
comparative purposes only and are not indicative of the actual results that
would have occurred had the acquisition been consummated at the beginning
of 1999 and 1998 or which may result in future years. The 1999 pro forma
combined financial results reflect a decrease in interest income for the
$13.7 million of cash used as if the purchase had occurred on January 1,
1999 without regard to positive cash flow generated from the operations of
Canadian Harvest during 1999.
4. Cash Equivalents and Short Term Investments
Following is a summary of the fair market value of available-for-sale
securities by balance sheet classification (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------
1999 1998
----------------- ---------------
<S> <C> <C>
Cash equivalents and short term investments:
Money market funds $ 900 $24,139
Commercial paper 3,537 4,725
Corporate bonds 7,762 -
U.S. government obligations - 995
Repurchase agreement 383 456
----------------- ---------------
$12,582 $30,315
================= ===============
</TABLE>
Gross unrealized gains and losses at December 31, 1999 and 1998 and
realized gains and losses on sales of securities for the years then ended
were not significant.
F-8
<PAGE>
5. Notes Receivable
At December 31, 1999 and 1998, notes receivable from an employee are
included in other assets. The terms of the note forgive the principal and
related interest ratably over a five year period as long as the employee
remains employed by the Company or if terminated without cause. The balance
of this note is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Unsecured note bearing interest at 8% $ 40 $ 60
================= =================
</TABLE>
6. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Raw materials $ 919 $ 420
Finished goods 3,759 1,651
--------------- ---------------
$4,678 $2,071
=============== ===============
</TABLE>
7. Fixed Assets
Fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Furniture and fixtures $ 907 $ 726
Machinery and equipment 20,417 10,861
Building 6,851 4,353
Land 1,863 1,463
--------------- ---------------
$30,038 $17,403
Accumulated depreciation (6,218) (4,930)
--------------- ---------------
$23,820 $12,473
=============== ===============
</TABLE>
Depreciation expense (in thousands) for the years ended December 31, 1999,
1998, and 1997 was $1,288, $1,184 and $1,010, respectively.
F-9
<PAGE>
8. Patents and Trademarks Assets
Patents and trademarks consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Patents and trademarks $ 2,089 $ 1,886
Accumulated amortization (1,497) (1,260)
----------------- -----------------
$ 592 $ 626
================= =================
</TABLE>
Amortization expense (in thousands) relating to patents and trademarks for
the years ended December 31, 1999, 1998, and 1997 was $237, $229 and $216,
respectively.
9. Accrued Expenses
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Bonuses $ 400 $ 670
Payroll costs and benefits 158 154
Professional fees 171 123
Other 551 309
----------------- -----------------
$1,280 $1,256
================= =================
</TABLE>
F-10
<PAGE>
Opta Food Ingredients, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
10. Borrowings
Long term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
------ ------
<S> <C> <C>
Mortgage payable to a bank due in quarterly installments of $27 including
interest at 7.37% with the remaining balance of $1,650 due June 2003,
secured by the Company's corporate headquarters $2,035 $2,145
Equipment line of credit due in quarterly installments of $80 plus
interest at LIBOR plus 2.5% (8.33% at December 31, 1999) beginning
August 1999, secured by certain fixed assets, due March 2002 796 955
Note payable to a state government agency and guaranteed by the U.S.
Small Business Administration due in monthly installments of $6
including interest at 5.554% due July 2003, secured by certain fixed
assets 215 269
Note payable to a state government agency due in monthly installments of
$6 plus interest at prime plus 2 1/2 % (11% at December 31, 1999) due
June 2000, secured by certain fixed assets 36 107
Note payable to a state government agency due in monthly installments of
$3 including interest at 3% due July 2001, secured by certain fixed
assets 45 76
------ ------
3,127 3,552
Current portion (394) (426)
------ ------
$2,733 $3,126
====== ======
</TABLE>
Maturities of long term debt outstanding at December 31, 1999 are as follows
(in thousands):
2000 $ 394
2001 343
2002 652
2003 1,738
------
$3,127
======
The Company's debt agreements contain certain financial covenants and restrict
the Company's ability to participate in merger discussions, pay dividends, limit
annual capital expenditures, invest in certain types of securities and obtain
additional debt financing without bank approval. At December 31, 1999 and 1998,
the Company was in compliance with the terms of these agreements.
F-11
<PAGE>
Opta Food Ingredients, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
11. Income Taxes
Deferred tax benefits consist of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1999 1998 1997
----- ------- -------
<S> <C> <C> <C>
Federal $ 128 $ 918 $ 1,548
State 36 220 389
----- ------- -------
$ 164 $ 1,138 $ 1,937
Increase in valuation allowance (164) (1,138) (1,937)
----- ------- -------
$ - $ - $ -
===== ======= =======
</TABLE>
Deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998
-------- --------
<S> <C> <C>
Net operating loss carryforwards $ 12,532 $ 12,571
Research and development credit 1,159 1,033
Other state tax credits 7 20
Expense accruals and other 579 489
-------- --------
Gross deferred tax assets 14,277 14,113
Valuation allowance (14,277) (14,113)
-------- --------
$ - $ -
======== ========
</TABLE>
The Company has provided a valuation allowance for the full amount of the
deferred tax assets since realization of these future benefits is not
sufficiently assured. As the Company achieves profitability, these deferred
tax assets may be available to offset future income tax liabilities and
expense.
A reconciliation between the amount of reported tax expense and the amount
computed using the U.S. federal statutory rate of 35% follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1999 1998 1997
------ -------- --------
<S> <C> <C> <C>
Income tax benefit at statutory rate $ (55) $ (869) $ (1,599)
State tax benefit, net (8) (129) (234)
Stock option exercises (13) - (3)
Research and development credits (140) (160) (146)
Other state credits 19 24 28
Other 33 (4) 17
------ -------- --------
$ (164) $ (1,138) $ (1,937)
Increase in valuation allowance 164 1,138 1,937
------ -------- --------
$ - $ - $ -
====== ======== ========
</TABLE>
F-12
<PAGE>
Opta Food Ingredients, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
At December 31, 1999, the Company had federal net operating loss carryforwards
and research and development credits which may be used to offset future
federal taxable income and tax liabilities as follows (in thousands):
Net Research and
Year of Operating Development
Expiration Loss Credit
---------- --------- ------------
2006 $ 1,095 $ 76
2007 4,247 128
2008 5,570 144
2009 3,720 112
2010 4,991 70
2011 4,713 48
2012 4,558 101
2018 2,280 107
2019 - 95
-------- -----
$ 31,174 $ 881
======== =====
A portion of the net operating loss carryforwards and valuation allowances
totaling $1,974,000 and $767,000, respectively, relates to deductions for
non-qualified stock option exercises and incentive stock option disqualifying
dispositions. This amount will be credited to additional paid-in capital upon
realization.
Ownership changes, as defined in the Internal Revenue Code, resulting from the
Company's initial public offering in March 1992 and a second offering in
August 1995, have limited the amount of net operating loss and tax credit
carryforwards that can be utilized annually to offset future taxable income or
tax liabilities. As a result, the amount of these net operating loss
carryforwards which can be utilized annually is $3,000,000 for losses incurred
prior to March 1992 and $9,077,000 for losses incurred prior to August 1995.
Subsequent changes in ownership could further affect the limitation in future
years.
F-13
<PAGE>
12. Stockholders' Equity
Preferred Stock
Shares of preferred stock may be issued at the discretion of the Board of
Directors of the Company with such designations, rights and preferences as
the Board may determine from time to time.
13. Stock Option and Stock Purchase Plans
During 1992 and 1991, the Company established the 1992 Employee, Director
and Consultant Stock Option Plan and the 1991 Non-Employee Stock Option
Plan, respectively. These plans provide for the issuance of non-qualified
or incentive stock options to key employees, directors and consultants of
the Company. The Board of Directors determines the term, price, number of
shares and the vesting period of each option grant. However, the price may
be no less than the par value of the common shares for non-qualified
options, and no less than the fair market value of the shares on the date
granted for incentive stock options (or no less than 110% of the fair
market value in the case of holders of more than 10% of the voting stock of
the Company). Additionally, the term of incentive stock options cannot
exceed ten years (five years for options granted to holders of more than
10% of the voting stock of the Company).
In May 1999, the stockholders approved an increase in the number of common
shares authorized for issuance under the 1992 Employee, Director and
Consultant Stock Option Plan from 1,916,667 to 2,166,667. The number of
common shares authorized for issuance under the 1991 Non-Employee Stock
Option Plan is 101,244.
The Company has reserved 1,820,670 shares of common stock for issuance
under the 1992 Employee, Director and Consultant Stock Option Plan and
9,838 shares for issuance under the 1991 Non-Employee Stock Option Plan at
December 31, 1999.
At December 31, 1999, options to purchase 1,714,921 shares were outstanding
under the plans, of which 735,826 were exercisable. There were 115,587
shares available for future grant under the plans at December 31, 1999.
Stock option plan transactions were as follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
---------- ------------------
<S> <C> <C>
Options outstanding at December 31, 1996 1,106,839 $7.58
Granted 644,497 $5.90
Exercised (21,918) $2.08
Cancelled (512,938) $9.83
---------
Options outstanding at December 31, 1997 1,216,480 $5.86
Granted 390,050 $4.79
Exercised (3,000) $5.25
Cancelled (52,030) $6.23
---------
Options outstanding at December 31, 1998 1,551,500 $5.58
Granted 335,450 $3.28
Exercised (30,899) $0.20
Cancelled (141,130) $5.96
---------
Options outstanding at December 31, 1999 1,714,921 $5.18
=========
</TABLE>
F-14
<PAGE>
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ -----------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Range of Options Contractual Exercise Options Exercise
Exercise Prices Outstanding Life Price Outstanding Price
- --------------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.06 - $0.45 32,836 1.4 $ 0.09 32,836 $ 0.09
$2.53 - $3.84 334,350 9.4 $ 3.28 1,750 $ 3.19
$3.94 - $5.50 460,790 7.7 $ 4.87 152,510 $ 4.97
$5.53 - $9.00 843,695 6.0 $ 6.02 510,630 $ 6.07
$10.00- $15.50 43,250 3.6 $10.57 38,100 $10.42
----------- -----------
1,714,921 735,826
=========== ===========
</TABLE>
In 1992, the stockholders approved the Employee Stock Purchase Plan. This
plan enables eligible employees to purchase common shares at 85% of the
fair market value of the shares during two six month periods beginning
January 1 and July 1 of each year. The Company has authorized 200,000
shares of the Company's common stock for issuance under this plan. At
December 31, 1999, 122,227 shares remain available for issuance under this
plan.
The Company has adopted the disclosure only provisions of FAS 123.
Accordingly, no compensation cost has been recognized for the stock plans.
Had compensation cost for the Company's stock plans been determined based
on fair value at the grant dates for awards in 1999 and 1998 as prescribed
by FAS 123, the Company's net loss and net loss per share would have been
as follows (in thousands, except for per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1999 1998
------------------ ----------------
Net loss:
<S> <C> <C>
As reported $ (157) $ (2,482)
Pro forma (471) (2,827)
Net loss per share:
As reported $ (.01) $ (.22)
Pro forma (.04) (.26)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
dividend yield of 0%, risk-free interest rate of 5.75% and 5%, expected
volatility of 65.3% and 64.9%, and an option term of 8 years, for the years
ended December 31, 1999 and 1998, respectively. The weighted average fair
value of options granted during the years ended December 31, 1999 and 1998
was $2.54 and $3.45, respectively.
14. Retirement Savings Plan
The Company has a 401(k) Plan which is available to employees of the
Company who meet certain eligibility requirements. This plan is qualified
under Section 401(k) of the Internal Revenue Code and is subject to
contribution limitations as set annually by the Internal Revenue Service.
Eligible employees may enroll January 1 and July 1 of each year. The
Company does not make matching contributions.
F-15
<PAGE>
15. Sales to Major Customers and Export Sales
During 1999 and 1998, a single customer accounted for $8.5 million and $5.2
million or 44% and 37% of total product sales, respectively. There were no
major individual customers during 1997. In addition, during 1999, 1998 and
1997, $3.0 million, $3.9 million and $3.5 million of product sales,
respectively, were to a group of independent bakeries that supply a quick
service restaurant chain.
International sales, in thousands, were $1,280 ($512 to Europe; $258 to the
Middle East; $189 to Canada; $30 to Asia and $291 to Latin America); $795
($418 to Europe and $377 to the Middle East); and $1,209 ($376 to Europe
and $833 to the Middle East) for the years ended December 31, 1999, 1998
and 1997, respectively.
16. Commitments
Leases
The Company leases certain equipment and facilities under noncancellable
operating leases. Total future minimum payments as of December 31, 1999
under these leases are as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
<S> <C>
2000 $ 265
2001 208
2002 167
2003 145
2004 149
Thereafter 336
--------
$ 1,270
========
</TABLE>
Rent expense (in thousands) for the years ended December 31, 1999, 1998 and
1997 was $168, $157 and $159, respectively.
F-16
<PAGE>
Exhibit 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-48624 and No. 33-65406) of Opta Food Ingredients,
Inc. of our report dated February 22, 2000 appearing on page F-1 of this
Form 10-K.
PricewaterhouseCoopers LLP
Boston, MA
March 20, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM YEAR ENDED
DECEMBER 31, 1999 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,578,000
<SECURITIES> 10,004,000
<RECEIVABLES> 3,927,000
<ALLOWANCES> 105,000
<INVENTORY> 4,678,000
<CURRENT-ASSETS> 21,733,000
<PP&E> 30,038,000
<DEPRECIATION> 6,218,000
<TOTAL-ASSETS> 47,815,000
<CURRENT-LIABILITIES> 3,546,000
<BONDS> 0
0
0
<COMMON> 111,000
<OTHER-SE> 41,425,000
<TOTAL-LIABILITY-AND-EQUITY> 47,815,000
<SALES> 19,289,000
<TOTAL-REVENUES> 19,289,000
<CGS> 12,408,000
<TOTAL-COSTS> 12,408,000
<OTHER-EXPENSES> 8,178,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 262,000
<INCOME-PRETAX> (157,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (157,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (157,000)
<EPS-BASIC> (.01)
<EPS-DILUTED> 0
</TABLE>
